Finance and Insurance - The Profit Center I would like to make myself clear on a few items of interest before I get too deep into the sales processes at any dealership, including: automobile, recreational vehicles, boats, motorcycle, and even furniture or other big ticket items. A business has to turn a fair profit in order to stay in business. I believe that they should make this profit and use it to pay better quality employees a premium wage in order to serve you better. The financial strengths or weaknesses of any business can definitely have a dramatic effect on your customer service and satisfaction. I do not, in any shape or form, wish to hurt a dealerships profitability, as it is essential for his survival. I merely want to advise people how to negotiate a little better in order to make the profit center more balanced. Let's get right down to this! Every dealership has a finance and insurance department. This department is a huge profit center in any dealership. In some cases, it earns more money than the sale of the automobile itself. Profits are made from many things that most buyers do not understand. You as a consumer should understand the "flow" of the sales process to understand the profit centers that are ahead of you. Most negotiating from the consumer seems to stop after the original price is negotiated and agreed upon. Let's examine just a small portion of what leads up to that point. The first thing that every consumer should understand is that when you go to a dealership several things come into play. One of the most important things that I could point out to you is that you are dealing with a business that has been trained to get the most amount of money from you as they can. They are trained and they practice these tactics everyday, day after day, week after week, month after month, and year after year. Let me point out a couple of important facts that I have said in this paragraph. First, you'll notice that I said a dealership and not a salesman and secondly, I emphasized times of day after day, week after week, etc. etc. This was done to let you know that the salesman is working very closely with the sales managers in order to make as much money as he can. Your interests are really not their objective in most cases. One tactic that is used heavily in the business is that the salesman says he is new to the business. This may be true or not, however; keep in mind that he does not work alone. He is working with store management, who gives him advice on what to say and when to say it. These guys or gals are very well trained on how to overcome every objection that you may have to buying from them. They have been trained in the psychology of the buyer and how to tell what your "hot buttons" are. They listen to things in your conversation that you may say to one another as well as to the salesman. They are trained to tell their desk managers everything that you say and then the desk manager is trained to tell the salesman exactly what and how to answer you. A seasoned salesman does not need as much advice from his desk and may negotiate a little more with you directly without going back and forth. The process of negotiation begins the moment that you walk into the front door or step foot out of your car and begin to look at vehicles. Different stores display inventory in different ways. This is done for crowd control or more commonly known as "up control". Control is the first step in negotiating with a customer. Ever who asks the questions controls the situation. Let me give you an example: A salesman walks up to you and says "Welcome to ABC motors, my name is Joe, and what is yours?" The salesman has just asked the first question- you answer "My name is George." He then asks you what you are looking for today, or; the famous "Can I help You?" As you can see, step after step, question after question, he leads you down a path that he is trained to do. Many times a well trained salesperson will not answer your questions directly. In some cases, they only respond to questions with other questions in order to avert the loss of control. An example of this could be something like you asking the salesman if he has this same car with an automatic rather than a stick shift. Two responses could come back to you. One would be yes or no, the other could very well be something along the lines of: 'don't you know how to drive a stick shift?" In the second response the salesman gained more information from you in order to close you. Closing means to overcome every objection and give your customer no way out other than where do I sign. The art of selling truly is a science of well scripted roll playing and rehearsal. We have established that the negotiating process begins with a series of questions. These questions serve as two main elements of the sales process. First and foremost is to establish rapport and control. The more information that you are willing to share with you salesman in the first few minutes gives him a greater control of the sales process. He has gathered mental notes on our ability to purchase such as whether you have a trade in or not, if you have a down payment, how much can you afford, are you the only decision maker (is there a spouse?), how is your credit, or do you have a payoff on your trade in? These are one of many pieces of information that they collect immediately. Secondly, this information is used to begin a conversation with store management about who the salesman is with, what are they looking for, and what is their ability to purchase. Generally, a sales manager then directs the sales process from his seat in the "tower". A seat that generally overlooks the sales floor or the sales lot. He is kind of like a conductor of an orchestra, seeing all, and hearing all. I cannot describe the entire sales process with you as this varies from dealer to dealer, however; the basic principals of the sale do not vary too much. Most dealerships get started after a demo or test drive. Usually a salesman gets a sheet of paper out that is called a four square. The four square is normally used to find the customer's "hot points". The four corners of the sheet have the following items addressed, not necessarily in this order. Number one is sales price, number two is trade value, number three is down payment, and number four is monthly payments. The idea here is to reduce three out of the four items and focus on YOUR hot button. Every person settles in on something different. The idea for the salesman is to get you to focus and commit to one or two of the hot buttons without even addressing the other two or three items. When you do settle in on one of the items on the four square, the process of closing you becomes much easier. One thing to keep in mind is that all four items are usually negotiable and are usually submitted to you the first time in a manner as to maximize the profit that the dealer earns on the deal. Usually the MSRP is listed unless there is a sales price that is advertised (in may cases the vehicle is advertised, but; you are not aware). The trade value is usually first submitted to you as wholesale value. Most dealers request 25-33% down payment. Most monthly payments are inflated using maximum rate. What this all boils down to is that the price is usually always negotiable, the trade in is definitely negotiable, the down payment may be what you choose, and the monthly payment and interest rates are most certainly negotiable. If you do your homework prior to a dealership visit you can go into the negotiation process better armed. You still need to keep two things in mind through this process. The first item is that you are dealing with a sales TEAM that is usually highly skilled and money motivated. The more you pay the more they earn. The second item to remember is that you may have done your homework and think that you are getting a great deal and the dealer is still making a lot of money. The latter part of this statement goes back to the fact that it is essential for a dealer to make a "fair" profit in order to serve you better. Once your negotiations are somewhat settled, you are then taken to the business or finance department to finalize your paperwork. Keep in mind that this too is another negotiating process. In fact, the finance manager is usually one of the top trained sales associates that definitely knows all the ins and outs of maximizing the dealerships profit. It is in the finance department that many dealers actually earn more than they earned by selling the car, boat, RV, or other large ticket item to you. We will break these profit centers down for you and enlighten you as to how the process usually works. Remember that finance people are more often than not a superior skilled negotiator that is still representing the dealership. It may seem that he or she has your best interests at heart, but; they are still profit centered. The real problem with finance departments are that the average consumer has just put his or her guard down. They have just negotiated hard for what is assumed to be a good deal. They have taken this deal at full faced value and assume that all negotiations are done. The average consumer doesn't even have an understanding of finances or how the finance department functions. The average consumer nearly "lays down" for anything that the finance manager says. The interest rate is one of the largest profit centers in the finance department. For example, the dealership buys the interest rate from the bank the same way that he buys the car from the manufacturer. He may only have to pay 6% to the bank for a $25,000 loan. He can then charge you 8% for that same $25,000. The dealer is paid on the difference. If this is a five year loan that amount could very well be $2,000. So the dealer makes an additional $2,000 profit on the sale when the bank funds the loan. This is called a rate spread or "reserves". In mortgages, this is disclosed at time of closing on the HUD-1 statement as Yield Spread Premium. This may also be disclosed on the Good Faith Estimate or GFE. You can see why it becomes important to understand bank rates and financing. Many finance managers use a menu to sell aftermarket products to you. This process is very similar to the four square process that I discussed in the beginning. There are usually items like gap insurance, extended service contracts, paint and fabric guard, as well as many other after market products available from this dealer. The menu again is usually stacked up to be presented to the consumer in a way that the dealer maximizes his profitability if you take the best plan available. The presentation is usually given in a manner in which the dealer wins no matter what options are chosen. With the additional items being pitched to you at closing, your mind becomes less entrenched on the rates and terms and your focus then turns to the after market products. Each aftermarket item can very well make the dealer up to 300-400% over what he pays for these items. Gap coverage for example may cost the dealer $195.00 and is sold to the consumer for $895.00. The $700.00 is pure profit to the dealer and is very rarely negotiated down during this process. The service contract may only cost a dealer $650.00 and is being sold for $2000.00. The difference in these items are pure profit to the dealer. You see, if you only paid $995.00 for the same contract, the dealer still earns $345.00 profit from you and you still have the same coverage that you would have had if you had paid the $2000.00. The same is true for the gap coverage. You are covered the same if you paid $395.00 or $895.00 if the dealers costs are only $195.00. The only difference is the amount of profit that you paid to the dealer. Another huge profit center is paint and fabric protector. In most cases the costs to apply the product are minimal (around $125.00 on average). In many cases the dealer charges you $1200-$1800 for this paint and fabric guard. As you can see, these products sold in the finance department are huge profit centers and are negotiable. I also have to recommend the value of most all products sold in a finance department. It is in your best interest to get the best coverage possible at the best price possible. Always remember this: The dealer has to make a fair profit to stay in business. It just doesn't have to be all out of your pocket.
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Faith for Finances: Practical Money Advice Our core scriptures are 3 John 2 and Joshua 1:8: Beloved, I wish above all things that thou mayest prosper and be in health, even as thy soul prospereth. This book of the law shall not depart out of thy mouth; but thou shalt meditate therein day and night, that thou mayest observe to do according to all that is written therein: for then thou shalt make thy way prosperous, and then thou shalt have good success. Today, we're talking about practical money advice. I don't count myself to be a financial guru; however, I do count myself to be a person who's allergic to being broke. I have been since I was a little girl. When I was a little girl, I used to put my money in my shoe when I went to school. One day, somehow, my money came out of my shoe. I guess the shoe was too loose. My feelings were so hurt that day; I couldn't believe I had lost my money. So, I started putting my money inside of my sock. My whole family tell jokes about this to this day. Anyway, it occurred to me that if I stick my money inside of my sock, then even if the shoe is loose, the money won't come out because it's in the sock. Brilliant! I could then feel my money under my toes, wiggle it around under there and I knew I had my money. I had my lunch money and I had my extra money to go and get me a honeybun with after school. So, I've always been this way. Again, I say I'm allergic to being broke because I associate security to a great degree with knowing that when I go to turn the light on, it's going to come on and knowing that when I get ready to take a bath, there's going to be water. I believe I inherited this. All of my Samuels' aunts are like this. Once I met a Samuels' cousin and her husband. Her husband began to jokingly describe her money habits to my then boyfriend and commenced to stepping on all of my toes. Awkward... However, that's my personality. Whatever your personality type, yield it to the Lord. I've always been a saver. So, it comes naturally to me to save money. However, there are also people who are naturally spenders and that's fine, too. The problem is when either category is left unchecked. If you spend all the time and don't set aside any money to make sure your needs are met, then you're in trouble. If you save everything and don't keep anything flowing, then you get into trouble that way, too. We have to yield our personality type to the Lord and allow Him to boss us. If something comes up and the saver doesn't want to give, we have to say, "Okay, if God is telling me do this, I need to do it." Then, of course, the person who spends too much, needs to check in with God on how to spend his money. Don't beat yourself up over the type of person that you are. Just let God boss you. Jesus is Lord. Let Him be Lord. He's not just your saviour who gets you into Heaven when you die. He is also your Lord on this side. Allow Him to be Lord of all. Allow Him to boss your money and you'll be in good shape. Here are my money tips: 1. Live Within Your Means a. Track your spending and cut costs First, live within your means. That might sound very elementary and it is. However, a lot of people don't do it. It's really that simple. You want to live within your means. Luke 14:28 says, For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Jesus is telling us, we have to count the cost. You might say, well, I don't want to build a tower. I don't have these high aspirations. However, when you look at that scripture in the Amplified Bible, it says, For which of you, wishing to build a farm building, does not first sit down and calculate the cost [to see] whether he has sufficient means to finish it? So, you may not want to build Donald Trump's tower. You may want to do something far simpler. Still, you need to count the cost. You need to see what it's going to take to get it done and you need to live within your means. A lot of us don't even know what our means are. We just go to work and get paid, then blow the money. We have some bills paid and the bills that don't get paid, just don't get paid. Then we dodge those "unknown" and "800" numbers that come in from bill collectors. We just keep in this crazy cycle that doesn't get us ahead in life, but gets us further down. So, first you have to know what you make (your means). You have to pay attention to what kind of income you have coming in and then you have to track what you're spending. Get a little memo pad or use your phone and write down what you're spending every day for a week or two. If you stop for coffee in the morning, write down how much it cost. Write down what you spent on lunch. If you had to stop and get gas, write down what it cost. Write it all down so that you can get an idea of where your money is going. Then when you see where your money is going, you can analyze how to make adjustments. You can see where you can cut costs. You might realize, I don't need to go out to lunch every day. If I'm spending $10 a day on lunch, that's $50 a week, $200 a month and $2,400 a year! (Actually, $10 is on the conservative side. Lunch costs have increased.) For some, it's a doable expense, but for most, it's money that could be better spent elsewhere. So, track your spending and then you can see where you can cut costs or reallocate your money. In the spirit of tracking spending, be sure to keep your ATM and debit card receipts and balance those in your checkbook. Also, reconcile your bank statements with your checkbook. You may have missed an entry or the bank may have made a mistake. Also, use your own bank's ATM. You won't want to run all over town and get money here and there if it's not your bank. You'll incur extra fees from them. It seems like it's a small amount of money, a couple of dollars here and there, but it adds up over time. Why just throw money away? You can use that extra money, especially if you're in a tight situation, to help get you out of the tight situation. So, use your own bank's ATM as often as possible. Don't use the other ones unless it's an emergency. To cut costs, use coupons. Don't feel too "sheeshy poopoo" to use a coupon. Cut those coupons out and use them and let them help you move forward. Some people have made a real art out of this and after all of their coupons are tallied, they leave the store without having to pay any money! So use coupons and let them help you survive and thrive. You can find coupons in the Sunday paper, the weekly circulars and online. I want to also mention credit card reform. Thankfully, under this presidential administration, they've done some reform with credit cards. In your statement, they now have to tell you how your payment will look if you just make the minimum payment. They have to show you how long it will take to pay off your balance when only making minimum payments. Be sure to read your statements and try to never pay just the minimum balance. Only do so when you're in a tight situation. Minimum payments go toward the accruing interest. You always want to attack the principal in some way. Even if they're asking for $10 and you can only give $1 more, then give them $11. It's not much, but it's moving you in the right direction. You want to always do something to hit on the principal and pay it down. Otherwise, you'll be paying for that thing forever. Ultimately, you'll want to discipline yourself to where you use credit cards like charge cards, meaning that you pay them off every month. Then you'll just be using them for convenience. That's something that you have to work towards. It doesn't happen overnight, but you can get there. b. Shop your pantry Shopping your pantry helps you live within your means and increase. You don't want to run out to the grocery store all the time. First, if you don't know how to cook, learn how to cook some basic stuff. Maybe everything will be scrambled eggs and minute rice at first, but later you can improve on that. You don't want to be dependent on fast food places for your daily sustenance. Groceries are a whole lot cheaper and a whole lot healthier. I know a lot of people don't know how to cook, but it can be learned. Spend some time with your grandmother. She'll be happy to teach you. Also, ask good cooks a lot of questions. Unless it's a treasured secret recipe, they'll be happy to offer tips. So, as I was saying, shop your pantry. That means, don't always run out to buy something when you have food at home. For example, let's say you have some raw spaghetti and you have some ground meat, but you don't have any spaghetti sauce. Then you'll go to the store and get the spaghetti sauce, because that makes sense. However, you won't go out and buy leg quarters and corn-on-the-cob when you have raw spaghetti and ground meat. You make the spaghetti. So, shop your pantry. Then when that runs low, you go to the grocery store and buy more groceries. c. Shop your closet Similarly, shop your closet. First, clean it out and get rid of stuff that you know you're not going to wear. Either have a garage sale or give it away. Then, put the money you earned to good use, like paying down debt. If you donate the items, make sure to write it off when you file your tax return. Then after you've cleaned your closet, determine what you have. Look and see what new outfits you can create from what's already in your closet. You may be able to create entire new outfits by mixing and matching. Then when you do shop, purchase accessories like new shoes, belts and jewelry, that will enhance what you already have. Like the spaghetti, you don't want to go out and buy a whole new outfit that perhaps you can't yet afford. Even worse, you don't want to buy some item just because it's on sale, like a pair of exotic shoes, and then have nothing in your closet to wear with them. Shop your closet first. All of these things that help us to live within our means call for thinking in advance. We can't just fly off the cuff and do things. We have to stop and think about it. Although, these things require thinking, we needn't get discouraged. God gives us wisdom - liberally. Take a moment, take some time with God and allow Him to show you how to plan your life to get ahead. 2. Always Think Profit We always want to have more money coming in than is going out. It's common sense, yet we don't do it. We need to always think profit. Isaiah 48:17 says, Thus saith the Lord, thy Redeemer, the Holy One of Israel; I am the Lord thy God which teacheth thee to profit, which leadeth thee by the way that thou shouldest go. So, it's God who teaches us to profit. Profit is not a bad word. We want to always think of maximizing what we have. We want to always ask ourselves, "How can I get the most out of this? How can I get the most out of this dollar? How can I get more bang for my buck?" One way is to learn how to bargain shop. What you'll want to do is get a good eye for quality. Study magazines that show you the nicest clothes and the nicest way to decorate your house, etc. Then you'll get a good eye for what quality looks like. Then you can shop places that will help you get nice things at a bargain. When you get a bargain, don't forget to save what you save. Have fun with the extra money sometimes, but as a rule, save it. You'll want to put that money in the bank, even a simple savings account is fine. Then after you get that developed, you can go further and get into fancier investments. There was a woman in Mississippi named was Oseola McCarty. She was a washer woman, which means that she washed and ironed shirts for the business people of her town. You don't make much money doing that, but this woman gave $150,000 to the University of Southern Mississippi to use for scholarships. All she did was wash clothes, yet she was able to save. She started saving with just a simple savings account. As her money started growing, the people at the bank took notice of it and began to help her make other investments with the money. So, you can start with just a simple savings account at your bank. Some of the new accounts offer an incentive for opening, like extra cash at the end of the year if you save monthly. Even with a simple savings account, look for one with a good return on investment. Always think profit. We're submitting ourselves to God and allowing His wisdom to permeate our lives and show us what we need to do at a given time. I mentioned maximizing everything. We're maximizing our time, maximizing the food that we have, maximizing the clothes that we have in our closet. Always think profit. This also comes in to play with jobs. I know with this recent recession, if you got laid off, you may feel like you have to take the first thing that's offered. This usually is not going to be such a great job. However, even after you take the job, don't think, "This is it." Still look for another job. Use your lunch hour and evenings to look until you get a good job. Your income is what's going to help you profit. Profit is having some money left over. It's not living paycheck to paycheck. It's not living in a situation where you have more "month than money" at the end of the month. It's not working every day and just being the working poor, not being able to pay all of your bills and paying all of them on time. We are to turn a profit. We are to have money left over. Always think profit. Look for a job where you have income that well covers your expenses. You always want to have more income than you have expenses. Submit that to God. Allow Him to show you how to do that. Ask, "God, how can I increase my income? How can I cut these expenses to survive and then thrive?" That is the goal in life. Whenever you're looking at an investment of any kind, you'll want to ask whether this is going to cost me more than I'm getting in return. If so, the answer is no. Income has to always exceed expenses. So again, if you have to take a job you don't like or that's not paying enough, keep looking. Work that job, do good for the employer that had mercy on you and hired you. Be good to them, but if they can't raise your salary to something decent, keep looking for a better position. If you're in business for yourself, think of ways to lower your overhead. Always think, "I have to keep my overhead low." Count the costs of what it takes to do your business and figure your profit into it. When you're setting your prices or fees, figure profit into it. However, don't be some crook and try to rob people. Submit it to God. Ask Him, "How can I figure profit into this, where I have more income than expenses, yet I'm fair to my clients or customers?" Keep submitting stuff to God. He'll show you what to do at a given time. 3. Don't compare yourself to other people 2 Corinthians 10:12, 17-18 says, For we dare not make ourselves of the number, or compare ourselves with some that commend themselves: but they measuring themselves by themselves, and comparing themselves among themselves, are not wise... But he that glorieth, let him glory in the Lord. For not he that commendeth himself is approved, but whom the Lord commendeth. So, it says you're not wise if you're running around comparing yourself to other people. One of the reasons you don't want to compare yourself to other people is because most of them are lying to you anyway. People that have it together are usually too busy with their lives to even come to you and try to make you feel bad about yourself. It takes a lot of work and time to be successful. So, that's the tip off right there. If somebody's bragging and trying to make you feel bad about yourself, that's a sign that they do not have themselves together. If you trace what they said, you'll find that they lied. If you just watch them long enough, you'll see that they're lying. They'll brag about this and that, but you watch them and you'll see that they're so broke they can't pay attention. Don't fall into that trap. Just pay attention to God. Good people don't run around putting other people down. Rock out where you are in life right now. Be content with where you are right now. Keep thinking profit and you'll continue to get ahead and you will always be blessed. If you always think, "I just need more income than my expenses," and if you cut your expenses and increase your income as best as you can, you'll be fine. As for being content, there's a scripture for that: Hebrews 13:5 says, Let your conversation be without covetousness; and be content with such things as ye have: for he hath said, I will never leave thee, nor forsake thee. In the Amplified Bible, Hebrews 13:5 says, Let your character or moral disposition be free from love of money, including greed, avarice, lust, and craving for earthly possessionism, and be satisfied with your present circumstances and with what you have; for He [God] Himself has said, I will not in any way fail you nor give you up nor leave you without support. [I will] not, [I will] not, [I will] not in any degree leave you helpless nor forsake nor let [you] down (relax My hold on you)! [Assuredly not!] Now, that's good news! So work what you got going and keep increasing and you'll be fine. Don't sit and compare yourself to somebody that you think has more than you. The Bible says to compare is foolish and that the people who do so are not wise. We are wise; we walk in the Wisdom of God. 4. Study Rich and Affluent People Now, this is not a contradiction. There's a difference between studying rich and affluent people and comparing oneself to them. The difference is the intent. If you're looking at them from a place of envy, then you fall into the comparison/foolishness camp. However, if you look at them to learn how to better yourself, with no malice involved, then you're in good stead. Hebrews 13:7 says, Remember them which have the rule over you, who have spoken unto you the word of God: whose faith follow, considering the end of their conversation. This scripture speaks to being able to look at natural examples to get advice on how to make it in this world. Rich and affluent people can serve as natural examples for you in your quest to increase financially. If you observe and listen to the rich and affluent, they'll give clues. They'll inevitably tell you things that they're doing or not doing in order to be successful. For example, Oprah doesn't necessarily teach finances, but you'll hear her say things like, "Always sign your own checks." So, listen to how she and other people have achieved success. Success leaves clues. Also, read the biographies of rich and affluent people. If you don't like reading, you can listen to audio books. Incidentally, you don't have to go broke getting these books. You can check them out from your local library for free! Make studying others' examples a habit and you will continue to learn, grow and increase financially. Additionally, I do recommend that you read and study the materials of financial experts. For example, study people like Suze Orman and Robert Kiyosaki and other people of that stature. If, as a Christian, you're nervous about studying secular materials, here is what I do whenever I study a non-Christian book (and sometimes the Christian ones, too). I pray and ask the Holy Spirit to help me receive what He would have me to receive and reject anything He'd have me to reject. I yield myself unto Him to guide me and to show me how to "eat the meat and spit out the bones." Yield to the Spirit and you'll be okay. Before I go - and I know this a lengthy post - let me give just two more tips: First, clean out your wallet. Get rid of gum wrappers, lint and other trash. Then place all of your money in order: ones, fives, tens, twenties, hundreds all grouped together, right-side up, with presidents facing forward. No one wants to live in disarray, including your money. Finally, don't use your coins to give out exact change. Instead, save them in a coin jar and at the end of the month, use them to pay a bill, add to your savings or spend on pleasure. We definitely need to come out of being broke and being under as Christians. We're the ones who are supposed to lead out and show the rest of the world how to live. Let's get to it!




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